The Federal Reserve Board on Wednesday announced a one-year easing in holding companies’ supplemental leverage ratio (SLR) requirements in an effort both to ease strains in the Treasury market resulting from the coronavirus and to increase banks’ ability to provide credit to households and businesses.
The SLR generally applies to financial institutions with more than $250 billion in total consolidated assets. It requires them to hold a minimum ratio of 3%, measured against their total leverage exposure, with more stringent requirements for the largest and most systemic financial institutions. The Fed said the change approved Wednesday – to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the SLR rule for holding companies – would temporarily decrease the institutions’ tier 1 capital requirements by approximately 2% in aggregate.
This revision, provided in an interim final rule approved unanimously by the board, will be effective on the date of its publication in the Federal Register and will remain in effect until March 31, 2021, the Fed said. The Fed is also inviting public comments for 45 days after F.R. publication of the interim rule.
“Liquidity conditions in Treasury markets have deteriorated rapidly, and financial institutions are receiving significant inflows of customer deposits along with increased reserve levels,” the Fed said in its release. “The regulatory restrictions that accompany this balance sheet growth may constrain the firms’ ability to continue to serve as financial intermediaries and to provide credit to households and businesses. The change to the supplementary leverage ratio will mitigate the effects of those restrictions and better enable firms to support the economy.”
The Fed reiterated that financial institutions have more than doubled their capital and liquidity levels over the past decade, and it encouraged the institutions to use that strength to support households and businesses. “The Board is providing the temporary exclusion in the interim final rule to allow banking organizations to expand their balance sheets as appropriate to continue to serve as financial intermediaries, rather than to allow banking organizations to increase capital distributions, and will administer the interim final rule accordingly,” it said.
Federal Reserve Board announces temporary change to its supplementary leverage ratio rule to ease strains in the Treasury market resulting from the coronavirus and increase banking organizations’ ability to provide credit to households and businesses
Interim final rule (notice for Federal Register)